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Bruce came to personal finance writing the old fashioned way: he didn't have much money, but wanted to do cool things. Clearly, some creativity was in order. From traveling around Europe to paying for a wedding, moving to New York to raising a child, he's figured out how to have fun without spending much money. In the process, he's also learned a few things about how politics and economics can help (or hurt) middle class finances. As DailyFinance's senior features writer, Bruce gets to combine his two favorite things: learning how the world works and explaining what he's learned to his readers.

It's no secret that many middle-class families are in a financial bind, caught between rising costs and falling incomes. But according to recent reports by the Department of Agriculture and the Congressional Budget Office, the middle-class squeeze is not a recent development, and isn't likely to disappear anytime soon.

On Tuesday, the CBO released an analysis of America's distribution of wealth over the last three decades. Their findings were shocking: Among the top 1% of households, income grew by an amazing 275% over the last 30 years. In the same period, the middle 60% of households -- the heart of the middle class -- saw their incomes increase by less than 40%.

But rising pay only tells half the story: As the rich have gotten richer, they have also gobbled up a bigger portion of the overall income pie. In 1979, half of all income went to the top 20% of households; by 2007, they were pulling in 60% of all income. Meanwhile, everyone else lost ground.

The Other Side of the Squeeze

While the middle class' slice of the income pie has gotten thinner, the price of real-life pie has shot up. According to the Department of Agriculture, food prices have increased by 4.7% since September 2010 and are on track to go up by another 4.5% over the next year. For certain products, the rise has been even sharper: Eggs and oils, for example, have gone up by more than 11%, while dairy products and beef have increased by more than 10%.

When prices rise, it's common to blame businesses and investors, but the recent cost inflation has been marked by a stagnation -- or even a drop -- in profits. Nicole Wolfgang, director of finance and product development at financial information company Sageworks notes that the impact on grocery stores has been negative: "Our data shows that grocery stores over the past twelve months have seen a slight decline in profits: They've gone down by 0.85%."

Similarly, Wolfgang points out, profits at full-service restaurants and food wholesalers have remained largely stable. The FDA notes, in fact, that the 1.3% rise in restaurant prices is the lowest annual increase in more than 50 years. Basically, food providers are lowering their profit margins to shield customers from price increases.

Competing for Food ... and Jobs

Ultimately, the fall in middle-class wealth and the rise in food prices may share a root cause: globalization. One effect of offshoring has been a drop in domestic wages, as American workers have increasingly found themselves competing with labor in cheaper overseas markets. As Don Peck recently noted in The Atlantic, this process has accelerated: "The recession, meanwhile, has restrained wage growth and enabled faster restructuring and offshoring, leaving many corporations with lower production costs and higher profits -- and their executives with higher pay." Thus, as business leaders have paid workers less, they've been able to pay themselves more.

On the other end of the spectrum, as overseas workers have made more money, they have spent more of it on food, driving up prices, a point that the Department of Agriculture acknowledged, noting that "cost pressures on wholesale and retail food prices due to ... strengthening global food demand, have pushed inflation projections upward for 2011." In other words, food prices -- and, in all likelihood, income inequality -- are going to keep growing for the foreseeable future, as American families compete with people in other countries for jobs and food.

Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.

769 Comments

About an hour ago I posted the following, "Reading many of these posts I see references to class warfare. Can anyone take a stab at defining class warfare?" From the one line foolish responses I can see that when folks use that term they have no idea what they are talking about. Perhaps part of the problem we all have is that we hear others speak and respond yet we frequently have no idea what they are saying

EXXON posted a 41% INCREASE in Pofits for this last quarter = 10.33 BILLION $Occidental Petroleum posted 50% increase in profits last quarter........Why do the Republicans insists that we keep on paying them subsidies?Hw many jobs have "the job creators" created while raking in these massive and historic profits?

the lack of knowledge and the amount of emotion are amazing. This is the political propaganda machine at work, as promoted by the likes of lushrimjob and company. We have a progressive tax. Therefore a person that makes a million would not pay 350,000 but rather 327643, and that would assume the income to be ordinary and that the million was taxable income after all deductions. Someone with that type of money if they owned their own business would structure it to be distributed through qualified dividends or long term capital gains, allowing them to be taxed at 15% for the largest rate. The one rate that I have heard only one PPM reporter and never heard on the drive by as well is what is the average tax rate or the effective tax rate. The reason we do not talk about that is the truth would really give the people a reason to revolt as the little people would realize that these facts that are being thrown around are the reasults of back room tacitcs used to get the little people to vote as they are needed. The only way for a society to grow is to learn..........we are on a slippery slope.

I have an idea Why don't we first get rid of all the illegals in this country that are bleeding us dry, adapt the concept that no one deserves a free ride. Teens shouldn't be home in the summer months on their i-pods or whatever let them go in the fields and find out what working for your money is all about. This country has become a country of " I want it for free" and it just doesn't work when you depend on the government to support you. Another thing that has to change is the court system where someone can rack up 1 million dollars for hot coffee she spilled on herself. Lets start looking at this country and the children that need adopting here. Penalties for the companies that outsource. Jail time for any company hiring an illegal whether they say they knew or not. Its time we took back out country and accepted the fact we are in trouble and no accept a president that constantly goes on vacation on taxpayers money. We voted him in and its time we stood up yelled on top of our lungs that we arent going to take it anymore. Government is suppose to work for us, not to be used but to do things in our best interest. Coming election time its time we showed the ones that haven't worked for us that their time is up.

I have to add, Obama knows that his cult like followers are the weak and uneducated. He wants to make sure that they all feel like victims so that they will think they have to rely on their Savior Obama instead of bettering themselves. If they ever became educated, he would lose all his sheep.

As our country has gotten more liberal with expanding social programs, our middle class is slowly dwindling. All the while the media and the socialist democrats want to show the numbers being reported on this site to further push the class warfare anti business rhetoric. What people forget when reading these misleading reports is that every American who has a 401K, and IRA, a company retirement programs or a union pension plan IS BIG BUSINESS! We are all invested in big business for our future financial security. Business needs a vibrant middle class to purchase goods and services while socialism just needs a poor and a rich class to pit against each other. Little by little the socialist democrats are winning this fight and the middle class is falling to the lower strata. Big government is the cause of so many of our national ills and they make matters worse when they try to rectify their mistakes. The democrats have been very successful at vilifying the trickle down financial theory while their trickle up poverty theory is working quite well.

If Obama can become President, ANYTHING is possible. And his race has nothing to do with my amazement that he was elected. With that being said, I am so sick of all these ridiculous articles about the middle class. We all have the same opportunities. If you want to make more, work more. Get an education. Put your neck out there and start your own business. The jealousy and complaining will get you nowhere. How the heck is a lack of effort "a squeeze"??

The Author of this article is obviously a fan of "distributing the wealth" and dividing this country through class warfare. All part of the Socialist's play book. But let the rest of us keep in mind that we still live in a country where anyone can become a CEO of a big company or even President. It depends on your choices in life. Sure there are some with an easier path than others, but the rewards are there for anyone who wants it bad enough and who is willing to work for what they want. One figure the author left out is how much in taxes those 1% pay. I am no millionaire. I am a small business owner. I paid like $40,000 in taxes last year. I did not recieve any more services from my government than someone paying $2000. For someone who is in that highest tax bracket of 35%, if they made a million they paid $350,000 in taxes. I say thank you for being rich enough to pay that much cash towards the care of our country. The real problem is in washington politicians, where they piss away all that money paying back special interests and unions for getting them elected. The answer to that is term limits for all politicians. That way, special interests will only be able to lobby on the merrits of their cause. Don't blame the rich for getting richer. Ask yourself why you are not a CEO of a big company right now. How many excuses are you willing to come up with? How many people are you going to blame for your own failure? If you want it. There it is. Make it happen. No excuses. This is America damn it.

Yes, this is America, and one does not have to be a fan of "distributing the wealth" to realize that 3 decades of Reaganomics is not in the best interest of the majority of the American people, but instead serves the interests of those with high incomes and/or that produce income from their wealth. People like you ignore the fact that lower income earners still pay taxes - payroll taxes, sales taxes, state taxes, local taxes and such - even if their taxable income falls low enough to receive full refunds for federal income tax that is withheld. And, people like you don't want to acknowledge that higher income earners pay lower effect tax rates for payroll and sales taxes, because their incomes exceed the SS salary cap and they don't spend everything that they earn. Now, as for your "Make it happen. No excuses."... Certainly people can and do work hard to increase their potential to earn higher incomes; but, this is by no means the land of equal opportunity - because the playing field is tilted in favor of those from families and people that can afford to pursue higher education and training. And face it, not everyone in this country is intelligent enough learn how to run a business, no matter how hard they try.